The government and the relevant political parties have attacked only the financial impact part of the report (Chapter 5) while ignoring other parts like how advice of Minister of Law and
Justice and suggestions of Prime Minister to reconsider pricing was
ignored, how licenses were issued to ineligible
entities, undue advantages given to Swan telecom and non fulfillment of roll
out obligations by the new telecom companies (Chapter 4 of the report). Therefore, this post explains only the Financial Impact part of the report.
If someone has the patience and brains to understand the report, it would be easy to realise that it does not state Rs.1.76lakh crore IS THE LOSS. Under Chapter 5 of the Performance Audit Report on the "Issue of Licences and Allocation of 2G spectrum" ( http://cag.gov.in/html/reports/civil/2010-11_19PA/Telecommunication%20Report.pdf ), the financial impact is assessed. It says the following points-
1) The price of Rs.1659 crore was fixed in 2001 at a time when teledensity was low and cost to consumers was high. So a low price would increase accessibility and reduce prices. But in 2008, the situation had changed- the prices were low, there was a steadily increasing demand from consumers and penetration was increasing. Under this situation, the price should have been revised.
2)S TEL voluntarily agreed to pay Rs.6,000 crore to Rs.13,752 crore for 6.2MHz spectrum and increase the amount in case of others offering a higher price. This alone works out to more than Rs.65,000crore and a loss of Rs.53,000crore (the government collected a grand total of Rs.12,386crore based on 2001 price)
3) By comparing the prices obtained in 3G spectrum, considering the demand for spectrum, its scarcity during 2007-2008 and opportunity, the price should have been Rs.1.52lakh crore against Rs.12,386crore obtained. A loss of 1.39lakh crore
4) Swan got license for INR1,537 crore (US$279.73 million) and then it sold 45% stake to UAE based company Etisalat for INR4,200 crore (US$764.4 million). Unitech Wireless, a subsidiary of the Unitech Group, got license for INR1,661 crore (US$302.3 million) and later sold 60% stake for INR6,200 crore (US$1.13 billion) to Norway based company Telenor. Calculation based on sale by Unitech gives a loss of 69,000crore or and that by Swan gives 57,000crore.
The government also allotted to existing operators, additional 3.6MHz (1.8MHz+1.8HMHz) spectrum based on usage, justification and availability at no cost(operator reaching subscriber base of 5lakh or more in a service are - page 24 of the report). To each of the above loss figures, the CAG added price of this additional spectrum. The amount of this loss was based on the recommendation of the Technical Committee appointed by Ministry for Communication and Information Technology for "Allocation of Access spectrum and pricing" that additional spectrum assigned beyond contracted 6.2MHz+6.2MHz should attract upfront charge equivalent to 3G auction price. TRAI also recommended in May2010 for charging the additional spectrum held by operators beyond the licensed quantity. This loss amount is 36,993 crore and is then added to 3. For the 2 and 4, the price of this additional spectrum is calculate at the same rate as that of the contracted 6.2MHz.
The loss calculations have been shown above and is taken from the CAG report.
These companies did not invest in setting up infrastructure and marketing, but still got extremely high prices while selling off shares and this was because of the only asset they possessed- spectrum. For companies like Telenor, they have trained manpower and technical know-how to establish a mobile telecom service provider, if they have the spectrum and they paid Unitech dearly for it.
"Audit reiterates that specific value of 2G spectrum could have been discovered only through an efficient market drawn process and in its absence, these are indicators available which give the hints towards the loss Government could have suffered. The revenue realised through auction of 3G at the rate fetched through a market process is highlighted in this report to project the benefits of resorting to an open price discovery process and the value that spectrum could command without compromising with the policy of open competition. The fact also remains that the Government got 1.03lakh crore from the auction of 3G and BWA spectrum against their own estimate of Rs.35,000crore"
This is from the report and what this means is that the auditor is not saying the loss is this much, but is indicating the magnitude of the loss the government suffered when it did not use market forces, which it had infact used in sale of 3G and Broadband Wireless Access spectrum(BWA). This is all the more important since the price fetched at 3G+BWA was almost the three times the estimated price.
So the CAG has not said the government lost 1.76lakh crore and has provided three different estimates of losses. Report also says that for better price discovery, market forces could have been used and when it was used in 3G spectrum auction, the government received an amount greater than its own estimate. It also says that the price received by the government by selling spectrum at 2001 rates is much lower than the real price of spectrum in 2007-2008 and such mistakes should be avoided in the future. It is high time the government ends this charade as it turns a blind eye to what is being said in the report and obfuscates the facts, attacks small parts of the report, denies it in spite of clear and simple evidence along with attacking the credibility of a constitutional authority using high-end rhetoric and puppets fueled by nothing but a lot of hot air.
If someone has the patience and brains to understand the report, it would be easy to realise that it does not state Rs.1.76lakh crore IS THE LOSS. Under Chapter 5 of the Performance Audit Report on the "Issue of Licences and Allocation of 2G spectrum" ( http://cag.gov.in/html/reports/civil/2010-11_19PA/Telecommunication%20Report.pdf ), the financial impact is assessed. It says the following points-
1) The price of Rs.1659 crore was fixed in 2001 at a time when teledensity was low and cost to consumers was high. So a low price would increase accessibility and reduce prices. But in 2008, the situation had changed- the prices were low, there was a steadily increasing demand from consumers and penetration was increasing. Under this situation, the price should have been revised.
2)S TEL voluntarily agreed to pay Rs.6,000 crore to Rs.13,752 crore for 6.2MHz spectrum and increase the amount in case of others offering a higher price. This alone works out to more than Rs.65,000crore and a loss of Rs.53,000crore (the government collected a grand total of Rs.12,386crore based on 2001 price)
3) By comparing the prices obtained in 3G spectrum, considering the demand for spectrum, its scarcity during 2007-2008 and opportunity, the price should have been Rs.1.52lakh crore against Rs.12,386crore obtained. A loss of 1.39lakh crore
4) Swan got license for INR1,537 crore (US$279.73 million) and then it sold 45% stake to UAE based company Etisalat for INR4,200 crore (US$764.4 million). Unitech Wireless, a subsidiary of the Unitech Group, got license for INR1,661 crore (US$302.3 million) and later sold 60% stake for INR6,200 crore (US$1.13 billion) to Norway based company Telenor. Calculation based on sale by Unitech gives a loss of 69,000crore or and that by Swan gives 57,000crore.
The government also allotted to existing operators, additional 3.6MHz (1.8MHz+1.8HMHz) spectrum based on usage, justification and availability at no cost(operator reaching subscriber base of 5lakh or more in a service are - page 24 of the report). To each of the above loss figures, the CAG added price of this additional spectrum. The amount of this loss was based on the recommendation of the Technical Committee appointed by Ministry for Communication and Information Technology for "Allocation of Access spectrum and pricing" that additional spectrum assigned beyond contracted 6.2MHz+6.2MHz should attract upfront charge equivalent to 3G auction price. TRAI also recommended in May2010 for charging the additional spectrum held by operators beyond the licensed quantity. This loss amount is 36,993 crore and is then added to 3. For the 2 and 4, the price of this additional spectrum is calculate at the same rate as that of the contracted 6.2MHz.
The loss calculations have been shown above and is taken from the CAG report.
These companies did not invest in setting up infrastructure and marketing, but still got extremely high prices while selling off shares and this was because of the only asset they possessed- spectrum. For companies like Telenor, they have trained manpower and technical know-how to establish a mobile telecom service provider, if they have the spectrum and they paid Unitech dearly for it.
"Audit reiterates that specific value of 2G spectrum could have been discovered only through an efficient market drawn process and in its absence, these are indicators available which give the hints towards the loss Government could have suffered. The revenue realised through auction of 3G at the rate fetched through a market process is highlighted in this report to project the benefits of resorting to an open price discovery process and the value that spectrum could command without compromising with the policy of open competition. The fact also remains that the Government got 1.03lakh crore from the auction of 3G and BWA spectrum against their own estimate of Rs.35,000crore"
This is from the report and what this means is that the auditor is not saying the loss is this much, but is indicating the magnitude of the loss the government suffered when it did not use market forces, which it had infact used in sale of 3G and Broadband Wireless Access spectrum(BWA). This is all the more important since the price fetched at 3G+BWA was almost the three times the estimated price.
So the CAG has not said the government lost 1.76lakh crore and has provided three different estimates of losses. Report also says that for better price discovery, market forces could have been used and when it was used in 3G spectrum auction, the government received an amount greater than its own estimate. It also says that the price received by the government by selling spectrum at 2001 rates is much lower than the real price of spectrum in 2007-2008 and such mistakes should be avoided in the future. It is high time the government ends this charade as it turns a blind eye to what is being said in the report and obfuscates the facts, attacks small parts of the report, denies it in spite of clear and simple evidence along with attacking the credibility of a constitutional authority using high-end rhetoric and puppets fueled by nothing but a lot of hot air.
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